When you can get growth, value, and a high 4.8% yield all in one stock it’s worth a second look.
In the case of this telecom giant, a recent acquisition has also boosted its Internet operations and customer base. In addition, the $4.5 billion purchase has added immediately to the company’s earnings and its outlook. Still, the stock trades at a moderate 11.8 times the telecom’s forecast 2018 earnings
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VERIZON COMMUNICATIONS INC. (New York symbol VZ; www.verizon.com) has 116.5 million wireless users, 12.3 million phone customers and 15.4 million Internet and TV subscribers.
In 2014, the company bought the 45% of the Verizon Wireless joint venture it didn’t already own from U.K.-based Vodafone Group (Nasdaq symbol VOD). Verizon paid $130 billion for Vodafone’s stake.
Thanks to that purchase, the company’s revenue rose 14.0%, from $115.8 billion in 2012 to $131.6 billion in 2015. In 2016, Verizon sold some of its local telephone operations. As a result, revenue for that year fell to $126.0 billion. Its revenues in 2017 remained unchanged from a year earlier.
Earnings fell from $4.00 a share (or a total of $11.5 billion) in 2013 to $3.35 a share (or $13.3 billion) in 2014, but rebounded to $3.99 a share (or $16.3 billion) in 2015. Earnings then fell to $3.87 a share (or $15.8 billion) in 2016 and again in 2017 to $3.74 (or $15.3 billion).
In the quarter ended June 30, 2018, Verizon earned $4.1 billion, or $1.00 a share. That’s down 5.5% from $4.4 billion, or $1.07, a year earlier. Without unusual items, earnings per share jumped 25.0%, to $1.20 from $0.96. Revenue gained 5.4%, to $32.2 billion from $30.5 billion.
Those gains are largely due to the June 2017 purchase of Internet search site Yahoo for $4.5 billion. Verizon later merged all of its Internet businesses, including AOL and the Huffington Post, into a new division called Oath. The company expects Oath to generate annual revenue of $10 billion or more by 2020—up from $8 billion in 2018.
Verizon added 295,000 wireless subscribers in the second quarter of 2018 (net of cancellations). About 96% of its wireless users have signed long-term contracts, and most of them use smartphones. Those devices generate higher profits for Verizon than regular cellphones.
Value Stocks: Verizon continues to upgrade its networks. Here’s why that’s important
The company continues to enhance its wireless and high-speed Internet networks. In 2018, it expects to spend between $17.0 billion and $17.8 billion on those upgrades.
Verizon will also roll out its new 5G high-speed wireless service across three to five U.S. cities in 2018. They include Sacramento and Los Angeles. This new system uses radio signals to connect customers to the Internet instead of telephone lines and fibre-optic cables. In June, the company conducted several successful outdoor tests for its 5G service.
A sound balance sheet supports Verizon’s investments. As of June 30, 2018, its long-term debt was $109.2 billion. That’s a high, but manageable, 52% of its market cap. The company also held cash of $1.75 billion. It now plans to cut $10 billion from its annual costs by the end of 2021. Those savings will help Verizon pay down its debt.
With the November 2017 payment, the company raised its quarterly dividend by 2.2%, to $0.59 a share from $0.5775. The new annual rate of $2.36 yields a high 4.6%. Verizon has now raised its dividend each year for the past 13 years.
The company will likely earn $4.60 a share in 2018, and the stock trades at a moderate 11.9 times that forecast.
Recommendation in TSI Dividend Advisor: Verizon is a buy.
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